Despite Bad News on Housing Market, Outlook is Positive for 2014

NEW YORK (TheStreet) -- There's reason to be on edge as more news pours in about volatility in the the U.S. real estate market, with some especially sour news on the housing starts front. But a little analysis paints a more reassuring picture.

According to the National Association of Homebuilders, nationwide housing starts fell by 9.3% in June, and building permits slid by 4.3%.

Market observers were taken aback by the report, seeing a big slide in housing starts as incompatible with a housing environment offering relatively low mortgage rates and tight inventories -- which both should trigger higher housing start activity.

One reason for the downturn in home starts may have something to do with geography, which might make the news not be as bad as originally thought.

"The decrease was concentrated in the South, where starts fell 29.6%, while starts rose in the other three regions," says Dean Maki, an analyst at Barclays. "It is unclear what led to the sharp decline in housing starts in the South in June, but the rise in single-family permits in June and the increases in the NAHB homebuilders index in June and July suggest that starts will increase in the coming months."

Also see: Mortgage Rates Could Ruin Summer Home-Sales Hopes

A longer-term view softens the bad news even further, Maki says.

"It is also worth highlighting that housing starts rose an annualized 26.2% in the second quarter of 2014 after plunging in the first quarter due to adverse weather conditions, so residential investment is still likely to make a positive contribution to the second quarter real GDP growth, despite the weakness in June."

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